OECD cuts 2004 Germany, Italy growth forecasts; raises projection for France
Tuesday, May 11, 2004 10:15:59 AM
PARIS (AFX) - The OECD cut its 2004 GDP growth forecasts for Germany and Italy but raised its projection for French growth
In its semiannual economic outlook, the OECD said it now expects the German economy to grow 1.1 pct this year, compared with a previous projection of 1.4 pct. It also cut its forecast for German 2005 growth, to 2.1 pct from 2.3 pct
The previous forecasts date from the organisation's November economic outlook
The OECD said Germany's economic recovery will be largely driven by exports, which are expected to accelerate as world trade growth expands more rapidly, but little improvement is expected in employment
"No rapid turnaround is expected on the labour market, with employment starting to increase moderately only towards the end of the year," it said
For Italy, the OECD cut its 2004 growth forecast to 0.9 pct from 1.6 pct and its 2005 forecast to 1.9 pct from 2.1 pct It said Italian economic activity is estimated to have remained "almost flat" in the first quarter and is expected to grow at a muted pace in the second. Italy releases first quarter GDP figures on Thursday
Italy faces risks relating to the fallout from the Parmalat SpA scandal, the OECD said
"Current uncertainties regarding corporate governance in Italy - if not tackled quickly - could widen the risk premia on corporate bonds or eventually lead to a credit crunch, halting the expected rise in investment," it said
Meanwhile, the OECD raised its forecasts for French growth, to 2.0 pct from 1.7 pct for 2004 and to 2.6 pct from 2.4 pct for 2005
It said business confidence indicators suggest that growth should continue to pick up strength in the first half of this year, but data for the first quarter are somewhat contradictory. French first quarter GDP is due tomorrow
For the euro zone as a whole, indicators suggest that growth picked up slightly in the first quarter, the OECD said
On fiscal policy, the organisation said it expects Germany, France and Italy to breach the EU stability and growth pact's 3 pct of GDP public sector deficit ceiling both this year and next
Portugal is also expected to exceed the deficit limit in both 2004 and 2005, while the Netherlands and Greece are seen breaching the limit this year but then trimming their deficits to 2.9 pct next year
Germany's deficit is projected to reach 3.7 pct in 2004 and then decline to 3.1 pct in 2005, while the French deficit is seen at 3.8 pct this year and 3.6 pct next year
Both countries have been above the deficit limit since 2002 and have already forecast that they will breach the limit again this year. But they have committed to get their deficits below the 3 pct threshold in 2005
The OECD said France will need to make substantial efforts beyond those announced so far if it wants to cut the deficit to less than 3 pct
Italy's deficit is forecast to reach 3.1 pct this year and then surge to 3.9 pct in 2005 as one-off measures wear off
"Further restrictive budgetary measures are thus needed," the OECD said
fxstreet.com
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If Germany, France, and Italy get within budget constraints there will be one H of a recession in Euroland IMO
Mish |
